English NewsBusinessIndia Becomes 4th Largest Economy, Japan’s ₹28 Lakh Per Capita Income Dwarfs India’s ₹2 Lakh Despite India’s ₹356 Lakh Crore GDP
Photo Credit: Tayyaba Khan
India has surpassed Japan to become the world’s fourth largest economy. However, in terms of per capita income, we are still quite behind.
In such a scenario, many people wonder whether becoming the fourth largest economy is better for our country and common man or having a better per capita income.
To understand this, it is necessary to compare the impacts of both these different economic indicators. These cast different impacts on common people.
Photo Credit: Subhash Dubey
What is better for common man GDP or per capita income?
Becoming a large economy means that India is emerging as a global economic power. It gives India the ability to attract foreign investment.
Benefits of GDP growth:
More Resources and Investment: A large GDP indicates that the country boasts of more economic resources. The government would earn more revenue for making investments in roads, railways, hospitals, education, and health services. This can provide better facilities to the citizens.Employment Opportunities: In a rapidly growing economy, industries, service sector, and startups expand, leading to increased creation of jobs. It signifies that sectors like IT, manufacturing, renewable energy, etc see high employment growth in India.Global Influence: A large economy gives India more power on the global stage, benefiting trade, investment, and diplomatic relations. This can indirectly benefit common man with better products and services.
Limitations of GDP growth:
Unequal Distribution: In a country like India, income inequality is high. The top 1% holds 41% of the wealth. This often limits the benefits of GDP growth to the rich.Common people do not immediately get benefits of GDP growth. India’s population is 142.86 crore. As a result, the benefits of GDP does not reflect too much at the per capita level.
What does per capita income mean?
Per capita income is calculated by dividing the country’s total income by its population.
Formula:
Per Capita Income = Total Income / Total Population
Advantages:
Better Standard of Living: Higher per capita income means every individual can benefit from better food, education, health, and lifestyle. The per capita income in Japan is $33,096 , whereas, in India it is $2,880.Purchasing Power: Higher per capita income increases people’s purchasing power, enabling them to buy quality products and services. Meanwhile, governments can implement schemes pertaining to social security, free treatment, and good education more effectively.
Limitations:
Impact of Inequality: Per capita income is calculated on average basis. If income inequality is high, this economic indicator can be misleading.
Why is India behind Japan in per capita income?
RankCountryGDP (Trillion USD)Per Capita Income1.USA30.51$89,011 (₹75.64 lakh)2.China19.23$13,069 (₹11.61 lakh)3.Germany4.74$55,091 (₹47.42 lakh)4.India4.19$2,880 (₹2.45 lakh)5.Japan4.19$33,096 (₹28.16 lakh)
Following reasons can be given for the same:
Economic Structure: Japan is a developed economy with high productivity, advanced technology, and mature industrial and service sectors. India is an emerging economy where agriculture and the informal sector have a large contribution, and per capita productivity is low.Income Inequality: In India, the top 1% of the population holds 41% of the wealth, while the bottom 50% holds only 3%. This results in a lower average per capita income.Population Difference: India’s population is 1.4286 billion, while Japan’s is only 124.5 million. Due to such a large population, India’s GDP is divided among more people, resulting in lower per capita income.
China’s population is also large, so why is the per capita income higher there?
China’s Economic Reforms: In 1978, under the leadership of Deng Xiaoping, China initiated market-related reforms, which included promotion of foreign investment and focus on export-oriented manufacturing. This led to a rapid increase in China’s industrial production and exports. Meanwhile, India began market-oriented reforms in 1991.China’s Productivity: China made significant investments in infrastructure such as the Three Gorges Dam and high-speed rail, which increased productivity. India has lagged behind China in infrastructure development such as roads, railways, and electricity. From 2000-2017, China’s per capita GDP grew at a CAGR of 8.71%, while India’s grew at 5.31% CAGR.China’s Urbanisation: By 2024, 67% of China’s population resides in urban areas, while in India, it is 34.5%. Urbanisation has increased employment in factories and the service sector in China. The income of people working in cities is higher than that of rural workers. A large portion of India’s population still depends on agriculture and the informal sectors, where income is lower.
What is more important for common man, GDP or per capita income?
For common people, having a higher per capita income is more important because it directly affects their standard of living and purchasing power. In countries like Japan, due to higher per capita income, common people enjoy better health, education facilities, and lifestyle, whereas in India, due to lower per capita income, the majority of the population struggles for basic needs.
However, becoming a large economy is also important as it provides resources to the government, which can improve infrastructure, employment, and social welfare schemes in the long term. But, common people get benefited only when the government focuses on inclusive development. In India, due to income inequality and low per capita income, the citizens do not get directly benefited from GDP growth.